What is Business Model Canvas and Why is It Important? [PDF Download]

by | Jul 4, 2020

It’s easy to get overwhelmed when you decide to start a new business venture.   You need a business model and a business plan. How do you make sure you’ve adequately described all the components of your business idea?  Now presenting the business model canvas.  A business plan is a plan that describes how a business intends to organize itself and generate profit.  The business model canvas, on the other hand, allows you to easily define the most important aspects of a business plan through 9 unique components.

What is the Business Model Canvas?

A business model canvas is a visualization tool with nine boxes. Each of these boxes allows you to assess your business idea in a different way.  These are the nine elements you’ll need to research as you put together for your business model canvas.  Furthermore, maybe you’re not sure what products to sell, who to work with,  or how to make money through your online business, no problem! Start with the business model canvas – eventually, your ideas will come.

The beautiful thing about the business model canvas is that is extremely simple and effective.  Unlike a business plan, the business model canvas allows you to visualize the most important aspects of your business.   Moreover, you don’t need to have every part of your business figured out before filling out a business model canvas.

Business plans certainly have their place when developing a business idea.  Think of the business model canvas as a preliminary step to the business plan.  it’s a way to organize thoughts and structure without the need to explain every aspect of your business in excruciating detail.

What are the 9 Elements of the Business Model Canvas?

1. Customer Segments

Your customers are the groups or companies that you’re trying to target to sell your product or service.  Segmenting your customers by geographical area, gender, age, behaviors, interest, or other factors can help you capture their needs and serve them in a more effective way.

2. Value Proposition

This section is truly the center of your entire business model canvas.  It’s where you discuss questions…

  • What is the unique solution to the issue that your customers will face?
  • How will your product or service be innovative or superior compared to your competitors?
  • How will it disrupt the market?

Value propositions can supply this information through either a qualitative (design, customer experience, etc.) or quantitative (speed of service, price, etc.) lens.

3. Revenue streams

In this block, you’ll describe how your value propositions generate revenue for your company. Revenue streams can occur via one of the following revenue models.

  • Transaction-based revenue: This type of revenue occurs when customers make a one-time payment.
  • Recurring revenue: This type of revenue occurs when customers make ongoing payments for continued services or post-sale services.

While transactional is great, nothing quite beats the beauty of passive income.  Secondly, with the business model canvas, you can explore all types of revenue streams to see which ones align with your other BMC channels.

4. Channels

What touchpoints will you have with your customers? How can they communicate with you and you with them? Most businesses break this up into owned channels, which are company websites, social media sites, in-house sales, etc.  Lastly, there are also partner channels, which are partner-owned websites, wholesale distribution, retail, etc.

5. Customer Relationships

It’s important to understand what type of relationship you want to create with your customers? Not every type of relationship is created equal. For example, some companies offer personal assistance where you connect with the customer through phone or email. Moreover, others seek a self-service model where there isn’t a relationship at all – the company provides the customer with the tools to help themselves. Lastly, there are always those other companies that create communities where customers can help each other if there is an issue with the product or service.

6. Key Activities

How will you make your business work? What do you need to do in order to make it happen?  Do you need warehousing?  Do you have a critical ingredient that’s difficult to get?   This section will answer these questions and list out all the key tasks and activities that you must do.

7. Key Resources

What do you need in order to make the business happen? In most cases, the key resources include:

  • Human (employees)
  • Financial (lines of credit, cash)
  • Physical (equipment, buildings, inventory)
  • Intellectual (brands, IP, copyright, patents)

8. Key Partners

The partners you decide to work with can be the difference between a successful and failing business.   What businesses can help you reduce risk and acquire resources? You may form strategic alliances between non-competitors in order to build your business. Additionally, you can also build buyer-supplier relationships to ensure you will always have access to the supplies you need for your products/services.  Joint ventures with partners are also an option to develop a new business independent of the one you’re already forming.  You may also engage with “coopetition” where you have a strategic partnership in order to reduce existing competition.

Partners are key to making a business work. Factoring in these partners ahead of time can help make your business more successful long-term.  For entrepreneurs looking to get themselves started online, exploring different affiliate programs vetting out potential partnerships can be a great way to understand how to leverage their products and resources.

9. Cost Structures

Ask yourself, what are the costs associated with operating your business model? Take some time to evaluate the cost of creating, delivering, maintaining your value propositions, revenue streams, and customer relationships. This is often easier to do once you’ve defined key resources, activities, and partners, and you can evaluate your business model as a whole.

Why is a Business Model Canvas important?

A business model canvas is a crucial visualization tool that helps make starting a business more accessible. It forces users to address key areas that may otherwise fall through the cracks. By parsing out a business plan into 9 components, you can easily see what you need to focus on and how your activities should be aligned and prioritized. It can also be used by a team (employees, supervisors, etc.) to understand important business relationships and organizational innovation.

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